Pricing, Quality, Perception and Profits: A Complex Relationship

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Despite the impetus of most companies being to make money – more, more money – there is a significant gain to be had from also focusing on customer satisfaction.

We will help you understand the complex relationship between pricing, quality perception, real quality and customer satisfaction. Although it is complicated, it has enormous benefits on customer loyalty, resulting in a subsequent increase in sales and profit.

Perceived and actual quality

Real quality, the characteristics a product possesses rendering it desirable and purposeful for a customer’s requirements, is a physical set of attributes that attracts the customer to the product both for its suitability and its superiority. However, a component of a product’s quality is actually perceived and as such, can be influenced by a range of factors.

Clever marketing experts understand these factors and are able to manipulate them to increase the perception of quality of a product which equates to an increase in desire, an increase in sales and ultimately increased profits.

Quality and its effect on customer satisfaction

Quality, both real and perceived, has a positive effect on customer satisfaction. Real quality means the customer has a superior product, which is both desirable and well-made to last and satisfy their requirements. Perceived quality has a positive effect on customer satisfaction because it justifies whatever the price is, thereby ensuring the customer does not feel “ripped off”. If the product has a far superior quality than what the customer would expect for the price, then their expectations are exceeded resulting in dramatically increased satisfaction.

The relationship between pricing and quality

Often, items of quality are priced higher because increased quality requires a greater attention to detail, which of course requires more time, costing more money. By the same token, sometimes a certain level of quality is unobtainable because of a pricing restriction and therefore the customer must become accustomed to a certain acceptable level of quality or lack thereof for a certain price.

A company can initiate an increase in quality for possibly only a modest increase in price resulting in marked increase in satisfaction. This is a key, effective strategy a lot of companies choose to employ. They increase prices slightly and rather than simply banking that money in the hope that their sales’ volumes will remain high from the phenomenon of a higher price implying better quality, they reinvest it in manufacturing to improve the real quality. In doing so, customers experience better quality and are happy to a pay a higher price, and the company relies on loyalty and an increased number of sales rather than an increased profit from each sale for its income.

In fact, research shows that there comes a point where price no longer forms a part of the equation for the customer, who grows to rely on and appreciate the quality and suitability of the product and will pay any price for the convenience and quality assurance it affords.

How pricing influences customer satisfaction

So now we have deduced what comprises quality, including the perception of it and how pricing can relate to it, it is a bit easier to define how the pricing strategy of a company can influence customer satisfaction. A customer will be satisfied if they perceive the quality of a product to be correctly reflected in the price of the product. If a product’s quality exceeds the expectation they have for a given price, the customer will be duly impressed and certainly satisfied. However, if the quality of a product is inferior to the customer’s expectation for a given price, the customer will be very dissatisfied.

The company not only has a role to play in ensuring the quality of a product is matched to the price to ensure customer satisfaction, but they can also increase the price of a product regardless of an improvement in real quality. This thereby increases the perceived quality (as generally higher prices equate to better quality), which can also improve customer satisfaction.

Take home messages

  1. Always ensure the quality of a product fulfils the expectation of the customer for a certain price.
  2. It is possible to increase prices regardless of increased quality, as long as quality does not fall short of a customer’s expectations.
  3. An increase in price can improve the perception of quality.
  4. An effective strategy can be to make money from sales volumes rather than increased profits from each sale, and rather reinvest the money from a higher price into actually improving the quality of a product. This increases customer satisfaction.
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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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